[Congressional Record (Bound Edition), Volume 158 (2012), Part 12]
[Senate]
[Page 17079]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 TRANSACTION ACCOUNT GUARANTEE PROGRAM

  Mr. TOOMEY. Mr. President, I rise this morning to address legislation 
that is under consideration--the extension of what is known as the TAG 
Program. The acronym stands for the transaction account guarantee. I 
wish to discuss this a little bit and give the reasons for my 
opposition to the extension of this program.
  First, a little bit of history about this. Many people are familiar 
with the FDIC Insurance Program. It is a longstanding program that 
provides a limited guarantee on bank deposits. Actually, for a very 
long period of time--I think it was over 25 years, starting in 1980--
the limits on the dollar amount of a balance that would get this FDIC 
guarantee was $100,000. That limit was raised for all accounts to 
$250,000 during the financial crisis of 2008, and then subsequently 
this new program was created, this Transaction Account Guarantee 
Program, which provides an unlimited guarantee. There is no limit 
whatsoever for a large category of deposits--not all deposits but all 
non-interest-bearing transaction deposits, which is a long way of 
saying pretty much checking accounts, although it would include other 
things. As you might imagine, there are many large corporations, 
municipalities, and very wealthy individuals who have these large 
accounts, and today those accounts are guaranteed without limit. The 
proposal we have is to extend this guarantee which is set to expire on 
December 31, to extend it for 2 more years.
  Let me be clear about one thing right off the bat. This is a 
taxpayer-provided guarantee. The taxpayers are on the hook for these 
deposits. If anybody has any doubt about that, I refer them to the 
FDIC's Web page. The home page of the FDIC's Web site states very 
clearly that ``FDIC insurance is backed by the full faith and credit of 
the U.S. Government.'' That means the taxpayers, so American taxpayers 
are on the hook for the full amount of these transaction guarantees.
  Let me explain why I think this is problematic. The first reason is a 
simple one. We are not in a financial crisis anymore. We have a 
miserable economy, but we certainly do not have a free-fall fiscal 
disaster, with financial institutions collapsing. We do not have the 
fall of 2008 anymore. There is actually quite a lot of stability in 
financial institutions. You could have a very interesting debate about 
whether this was ever a good idea, but I do not understand how you can 
justify it now in an environment that does not even faintly resemble 
the crisis circumstances of 2008. If we are going to extend it now for 
2 more years when there is clearly no need for it, it certainly seems 
to me to suggest an interest in making this a permanent feature of the 
American banking system--permanent, unlimited guarantee, the 
socialization of deposits in this country, which I think is a terrible 
idea.
  Second, this is a big contingent liability for taxpayers. There is 
about $1.5 trillion in deposits right now that fall into this category 
and is being guaranteed and would continue to be guaranteed if the 
guarantee were extended.
  It is also worth noting that this mostly benefits the big banks. It 
is big banks, not surprisingly, that have a disproportionate share of 
big accounts. In fact, the 19 largest banks hold two-thirds of all the 
deposits and accounts that are guaranteed under the TAG Program, so 
this is a nice big help to a lot of big banks.
  I would argue that there is something maybe even worse than all of 
this about this. I believe the very existence of the TAG Program 
actually increases the risk of bank failures, and here is the reason 
why. In the absence of these unlimited guarantees, a corporation or a 
municipality or a wealthy individual or an institution making a large 
deposit--an amount that exceeds the limited FDIC's traditional 
guarantee--such an institution is going to do its due diligence on the 
strength of the bank. It is going to want to understand that this bank 
is properly run, that it is prudently managed, and that due diligence 
is a discipline the market imposes on the banking system. The banks 
have to prove to potential depositors that they are well run, that they 
are sensible and prudent and are not taking too much risk in order for 
the depositors to be confident they will ever be able to get their 
money back. So that is a very important mechanism that imposes a 
discipline that helps to keep banks doing what is prudent.
  With this unlimited transaction guarantee, nobody has to worry about 
whether the bank is well run because the government, the taxpayer is 
there to return all their money if the bank messes up. That removes 
that very important discipline and in the process I think actually 
increases the risk that more financial institutions, more banks would 
in time fail because they are not held to a higher standard by their 
depositors and that therefore the taxpayers would be picking up an even 
larger tab than what some might project.
  I argue that the premiums systematically underfund this program. 
There are premiums that are charged to the banks in return, but banks 
would be adamantly insisting that they have the option to opt out if 
they were not being subsidized. The fact is, it is being subsidized. So 
the taxpayers are not getting, in my view, an adequate premium for the 
risk they are taking--not that they should be in the business of taking 
that risk in the first place.
  The last point I would make about the banks is that I don't think 
this is good for the banks themselves because this is the kind of 
government program that inevitably leads to a lot of people in this 
town thinking they have the right to force the banks to do whatever 
they want them to do, including giving away goods, and it is justified 
on the grounds that it is reasonable for us to ask of these banks 
since, after all, we the taxpayer, we the government provide them with 
this guarantee. So I think this is not in the interest of the banks 
themselves.
  I am sympathetic with the argument that some of my friends in the 
community banking world have made, the argument that with Dodd-Frank, 
when we codified too-big-to-fail, we created a whole category of large 
financial institutions and we designated them--we use a different 
acronym--we call them systemically important financial institutions. 
Most people see that as another way of saying too big to fail. Having 
codified that, our community bankers argue that that gives these banks 
an unfair competitive advantage in attracting depositors.
  I am sympathetic to that argument, but I would argue, first of all, 
that it is seldom a good idea to counter one bad government policy with 
another one. Compounding errors usually takes you in the wrong 
direction.
  Second, what we need to do is reform Dodd-Frank. We need to do a lot 
in reforming Dodd-Frank, in my view. That is the right way to deal with 
this perception of a competitive advantage. We ought to be providing a 
lot of regulatory relief for community banks, and I say that as someone 
who has been actively involved in the community banking industry 
personally.
  I also suggest that there are other ways community banks can, in 
fact, successfully compete against the large banks, other than with 
this guarantee of deposits.
  My last point is that last year we ran a deficit of $1.1 trillion. 
This coming year, unfortunately, it looks as though we are likely to do 
something like that again. This bill violates the Budget Control Act, 
the cap, the limit we put on spending. It exceeds that, and it creates 
a new amount of spending above and beyond what was contemplated. I 
think that is a huge problem in and of itself. So I oppose this 
legislation on the substance of it, but in particular I am objecting to 
the fact that it does exceed this budgetary authority.
  Mr. President, at the appropriate time, I intend to raise a budget 
point of order. If that is now, I will do it now.

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